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Unemployment Benefits Hang on “Fiscal Cliff” Deal

A crucial jobs issue hangs on the "fiscal cliff" negotiations: will lawmakers extend unemployment benefits for millions of Americans?

Jobless benefits for the roughly 2.1 million Americans who have been out of work for more than six months will expire at the end of December. The Congressional Budget Office (CBO) estimates that an extension of these benefits would cost the government nearly $30 billion.

Lawmakers already cut back federal jobless benefits to a maximum of 73 weeks, from 99 (although some states, such as New York, ultimately still offered a combination of benefits totaling 99 weeks for those who exhausted all available emergency unemployment compensation). In general, states provide 20 to 26 weeks of benefits for eligible workers and then federal benefits cover up to 47 more weeks. The extent of federal benefits varies based on each state's unemployment rate. The higher the rate, the greater the number of weeks.

The CBO estimates that unemployment insurance benefits totaled $94 billion in fiscal year 2012, while the unemployment rate averaged 8.3%. For comparison, it paid out just $33 billion in fiscal year 2007, when the rate was 4.5%.

The Upside and Downside

The upside of an extension would be a mini stimulus, according to a Nov. 28 CBO report. Every dollar spent in 2013 would translate to an additional $1.10 in economic output, according to the CBO.

Some argue that the downside, other than the price tag, is the possibility that some individuals will lose incentive to look for work.

"Research suggests that increases in the generosity of benefits do have a modest effect on search effort and the duration of unemployment, but the best estimates suggest that extended benefits added only between 0.1 and 0.5 percentage point to the unemployment rate in 2011," says the Brookings Institution's Adam Looney. "The real culprit is a weak labor market: job openings haven't increased enough to make a big enough dent in the unemployment rolls."

Many Americans aren't finding work and the most recent jobs report underscores the severity of the jobs crisis. The unemployment rate in November dropped to 7.7% from 7.9% largely because 542,000 individuals stopped looking for jobs.

The CBO offered four ways to extend jobless benefits — including their estimated costs to the federal budget:

Fully extend the current Emergency Unemployment Compensation (EUC) program and temporary provisions of the Extended Benefits (EB) program for one year. ($30 billion)

Partially extend the current EUC program by providing at most 14 extra weeks of benefits for one year. ($14 billion)

Allow UI recipients to finish receiving up to 14 weeks of EUC benefits, depending on the number of weeks of benefits for which they will qualify at the end of December 2012. ($4 billion)

Extend the current EB program for one year, maintaining full federal funding and allowing states to more easily qualify for the program. ($3 billion)

Looney expects lawmakers will include an extension of jobless benefits in a fiscal cliff compromise: "It's hard to see how, if they were left on the table in a fiscal cliff bargain, they would be extended in a separate or stand-alone agreement."

Should lawmakers include an extension to unemployment benefits in a fiscal cliff deal?